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US government considers action on patent trolls

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Anne Broache CNET News

Published: 16 Jun 2006 14:50 BST

US politicians are considering action against "patent trolls" - companies that hold patents for no reason other than coaxing inflated settlements out of wealthy corporations.

"The patent system should reward creativity, not legal gamesmanship," said Texas representative Lamar Smith, who chairs an intellectual property panel at the US House of Representatives, at a hearing called "Patent Trolls: Fact or Fiction?"

A troll is a patent holder who "spends not a cent on development...(and) patents every monkey he kisses," according to California Democrat Howard Berman. "All he does is spend his time sitting around waiting, (hoping) that he can make enough of a case that it might infringe on his monkey that somebody will pay him to go away."

Smith and Berman have both put forward proposals to fix a broken patent system, and want to see new laws this year.

Committee members approved of a US Supreme Court decision in the case between eBay and MercExchange, which should limit the use of injunctions in patent suits. The ruling established that patent holders aren't "automatically" entitled to injunctions barring convicted infringers from using their inventions and instructed courts to consider factors such as whether the patent owner would experience irreparable harm if an injunction weren't granted, and whether other remedies, such as monetary compensation, would be enough.

"An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees" that can be "exorbitant", commented Justice Anthony Kennedy.

"Is that an activity that is essential to innovation in America, that should be rewarded and that the process should accept and legitimate?" asked Berman.

He and his colleagues said other areas of concern remain, such as the way that damages are awarded to patent holders who win infringement suits and the quality of patents issued. Both bills, for instance, would establish a "post-grant opposition system" in which the public would have a certain number of months to dispute the validity of patents after they are issued, without having to go to court.

The politicians should concentrate mainly on rewriting the law around damages, suggested Paul Misener, Amazon's vice president of global public policy. Since products may rely on hundreds of thousands of distinct patented components, juries could be required to award money to patent holders based solely on the infringed patent's contribution to the overall product, not on lost sales for the entire affected product, according to a suggestion from Amazon and other technology companies.

This would effectively reduce the potential gains, so people and companies would not have such a great incentive to obtain their livelihood by sitting on patents until they can find a company to sue for infringement.

Companies should not get compensation for "lost profits" if they don't make a competing product to the company they are accusing of infringement, said Misener. Those who "do not compete in (the) marketplace are not entitled to lost profits but instead to a reasonable royalty," he said.

But Segway inventor Dean Kamen argued that politicians should not penalise legitimate inventors, in a quest to root out the trolls. "If a big company repeatedly disregards people's rights, they are as bad as the trolls at the other end," Kamen said. He suggested that a way to quell abuses by both sides could be to institute "some form of loser-pays" approach to "penalise people who are abusing the system."

Misener's suggestions prompted Smith and Berman to take jabs at Amazon's one-click patent, which covers a process for making online purchases in a single step, and caused controversy when the e-commerce giant asserted it against Barnesandnoble.com.

"Could not Amazon.com be accused of being a troll for patenting the one-click?" Smith asked, a wry smile on his face.

Misener defended the patent as "a radical departure from the shopping cart model" when it was granted in 1998. "We only exercised the patent against someone who at the time...had publicly announced intention to crush our business," he said. "This wasn't some scheme to hit up small users."